Author: Bankless

Translation: Baihua Blockchain

From Wall Street "whiz kid" to Ethereum micro-strategy creator, Tom Lee's Bitmine has, in less than a month since its establishment, acquired 833,000 Ethereum, accounting for nearly 1% of the total supply, making it the world's largest publicly listed Ethereum treasury company.

Bitmine's goal is to benchmark against MicroStrategy, aiming to hold 5% of the total Ethereum supply.

How does this Wall Street Ethereum bull view Ethereum, and why does he believe Ethereum is currently replicating Bitcoin's explosive rise before the surge in 2017?

This interview elaborates on these questions, with the following dialogue translated by Baihua Blockchain.

Q1: Bitmine currently holds 833,000 Ethereum, accounting for nearly 1% of the total supply, making it the world's largest publicly listed Ethereum treasury company. How does it feel to achieve this?

Tom Lee: We acted very quickly, announcing the establishment of Bitmine on June 30 and completing preparations by July 8. In just 27 days, we acquired these Ethereum at a very high speed.

This is very important because MicroStrategy has proven the potential for a 30x return through its strategy. In August 2020, MicroStrategy's stock price was only $13, while Bitcoin surged from $11,000 to $120,000, resulting in a 20x return from its asset strategy, totaling a 30x return.

I believe Ethereum is one of the biggest macro trades of the next decade. Therefore, we want to act quickly to acquire more Ethereum at $3,500 or lower, ahead of its leap similar to Bitcoin's over the past five years.

Q2: After Bitmine announced its Ethereum treasury strategy, companies like ConsenSys and SharpInk Gaming followed suit within five days, announcing similar plans. Why did multiple Ethereum treasury companies emerge within two weeks? Is it a market trend or coincidence?

Tom Lee: Perhaps it's a case of great minds thinking alike. For a long time, the market mainly had Bitcoin asset companies and a few Solana asset companies. SharpInk was the first to announce in May that it would become an Ethereum asset company, and we are actually latecomers.

Ethereum is highly attractive as an asset strategy. If you are bullish on Ethereum itself, an asset strategy allows you to accumulate more Ethereum, which is more advantageous than an ETF.

The staking and proof-of-stake mechanism of Ethereum allows asset companies to become infrastructure companies, earning returns through staking, possessing true commercial entity attributes. For example, the over $3 billion Ethereum we hold can earn over 3% returns through native staking, meeting GAAP net income standards.

Additionally, we pursue scarcity. Bitmine's goal is to acquire 5% of Ethereum, relying on a clean balance sheet and extremely high liquidity—daily trading volume of $1.6 billion, ranking 42nd in the U.S. stock market, comparable to Uber. Our market cap is about $4 billion, while Uber's is $184 billion.

Q3: Bitmine has acquired 830,000 Ethereum in four weeks, aiming to hold 5% of the total Ethereum supply, which requires about $20 billion. How do you plan to achieve this goal?

Tom Lee: MicroStrategy currently holds 3.2% of the circulating supply of Bitcoin, aiming to hold at least 1 million Bitcoin, which is about 5%, thus obtaining a "sovereign call option" on the Bitcoin ecosystem. If the U.S. wants to establish a strategic Bitcoin reserve, publicly purchasing 1 million Bitcoin would push prices up due to reduced sellers, potentially skyrocketing to $1 million instantly, making MicroStrategy a simpler way.

MicroStrategy took five years to reach 3%, averaging about 16 cents of Bitcoin purchased daily. In contrast, Bitmine has been adding about 80 cents to $1 of Ethereum daily since its inception, at a speed 12 times that of MicroStrategy. If we maintain this speed, we could reach 5% in 1 to 2 years.

We are a fully compliant entity, 100% adhering to the concept of Ethereum as a legitimate and compliant blockchain. All of Bitmine's operations are within the U.S., meeting Wall Street and U.S. government expectations for large-scale staking Ethereum entities.

Ethereum will be the main blockchain for Wall Street's financialization. Some have likened staking Ethereum to gamers buying Nvidia on Twitter. When Wall Street tokenizes assets, they not only need to hold Ethereum but also hope that stakers will drive Ethereum's goals. We play a significant role through staking.

Q4: Can Ethereum treasury companies also have a strategy similar to MicroStrategy's Bitcoin "sovereign call option"? With banks like JPMorgan and stablecoin legislation pushing for the dollar to go on-chain, will the U.S. government contact Bitmine for over-the-counter purchases of Ethereum?

Tom Lee: Your point is valid, but our goal is not to have call options. Looking ahead, Wall Street hopes to migrate the financial system to the blockchain, and Ethereum is the largest and most compliant blockchain.

Ethereum is legally recognized under U.S. law and can also be used by other countries and institutions. The U.S. clearly wants to solidify its dominance over Ethereum.

In addition to financialization, Ethereum is also related to artificial intelligence. Tokenizing robots or other assets requires a secure blockchain, and technology and Wall Street are converging on Ethereum.

Goldman Sachs and JPMorgan do not want Ethereum to be scattered across millions of wallets; they are not seeking centralization but hope to stake in a compliant manner. Bitmine has maintained a clean balance sheet from the start, with no complex capital structure and transparent operations.

We have not yet announced our staking solution because the $3 billion in Ethereum needs to be handled carefully, but we will fully comply with GAAP and U.S. staking requirements, taking a thoughtful approach.

Ethereum asset companies are key infrastructure, not just asset strategies, providing staking yields and other potential income sources, far exceeding the role of ETH ETFs, and are crucial in the ecosystem.

Q5: Bitmine purchased $3 billion in Ethereum within a month; why has the price not yet broken $4,000? Why hasn't the market risen due to large purchases?

Tom Lee: As one of the largest buyers of Ethereum, we have learned a lot, but it's not appropriate to disclose too many details. In the short term, price movements do not fully reflect fair value. Last week, Ethereum dropped to $3,300, possibly due to liquidation levels, paired trading, or some believing Ethereum is a "dead chain," betting on other chains and attempting forced liquidations.

This is a short-term dynamic, similar to Bitcoin's situation at $1,000 in 2017. Ethereum is experiencing a moment similar to Bitcoin in 2017, with Wall Street beginning to support Ethereum.

At the beginning of 2017, Bitcoin was only $1,000 and only surged in August. Currently, Wall Street's interest in Ethereum assets and networks is unprecedented in the past four to five years.

Q6: Why choose an Ethereum treasury company instead of Bitcoin asset companies like MicroStrategy or Solana asset companies? What unique advantages does the Ethereum treasury strategy have?

Tom Lee: I am very bullish on Bitcoin, and research shows its price could reach $1.5 million. However, Bitcoin and Ethereum play different roles in financialization. Ethereum represents blockchain financialization, which is not Bitcoin's goal.

Ethereum also provides a digital native way in the field of artificial intelligence, connecting the real world with digital security, thus attracting companies holding Ethereum assets.

If I were to invest in Bitcoin, I would choose MicroStrategy because it continuously increases its Bitcoin holdings, outperforming Bitcoin itself. Ethereum asset companies are the only way for U.S. stock market investors to access Ethereum, unless they directly purchase Ethereum or ETFs.

For institutional investors, this is a significant investment theme. They will not simply invest in JPMorgan but seek direct exposure to Ethereum, although ETFs may not fall within their fund parameters. Therefore, Ethereum asset companies are a macro trading entry point for professional investors in the U.S. stock market.

This explains why Cathie Wood and Bill Miller have made significant investments in Bitmine; they believe it is the best way to gain macro exposure to Ethereum.

Q7: What tools does Ethereum's DeFi ecosystem provide Bitmine to accumulate more Ethereum? Besides MNAV premiums, what other strategies are there?

Tom Lee: That's a good question, but some strategies are proprietary information, so I won't disclose them.

Investors should not oversimplify their understanding of asset companies. We are already the third-largest crypto asset company globally, behind Mara Blockchain and MicroStrategy, holding assets exceeding MetaPlanet.

For a company of our size and liquidity, strategies are not singular but operate multidimensionally.

Q8: Why would Ethereum treasury companies have MNAV premiums? Why do investors believe the premium should be close to 1 or below 1 in a bear market?

Tom Lee: Suppose someone acquires Bitmine; our cost structure is strict. Holding $3 billion in Ethereum, some might think we are like an ETF, valued at only 1x net asset value. However, we have a 3% native staking yield, which, if paid as net income, would be valued at 6x net asset value based on a 20x price-to-earnings ratio in the money market, bringing our valuation to 1.6x.

Additionally, speed must be considered. When we launched the Ethereum strategy on July 8, we held $4 of Ethereum per share, which increased to $23 by July 27, and is currently even higher. In 20 days, each share increased by $19 in Ethereum, which reflects speed.

MicroStrategy adds 16 cents of Bitcoin daily, achieving a 0.7 premium. Our speed is 12 times that, and the theoretical premium could reach 6 or higher.

Moreover, liquidity premiums cannot be ignored. MicroStrategy has a daily trading volume of $3 billion, while we rank as the second-largest liquid crypto asset company with $1.6 billion, compared to MetaPlanet's $50 million.

Therefore, Bitmine's valuation should be 1x net asset value, plus a 6x earnings premium, along with speed and liquidity premiums.

Q9: Bitmine's acquisition speed of Ethereum in the first month is 12 times that of MicroStrategy. Can this speed be sustained in the coming year? How do you achieve such a high purchasing speed?

Tom Lee: Speed depends on liquidity, and liquidity and speed complement each other. We can maintain high speed due to extremely high liquidity.

As of 2 PM on August 6, our trading volume reached $800 million, while MicroStrategy's was $3 billion. The third-largest holder of Ethereum, Ether Machine, has a trading volume of only $7 million, which makes us 100 times that; the fourth-largest holder, BTBT, has $49 million. The liquidity difference is enormous, directly impacting speed.

High speed requires extremely high liquidity support.

Q10: Where does Bitmine's liquidity come from? How do you attract such high trading volume to support Ethereum acquisitions?

Tom Lee: Liquidity comes from team collaboration. As chairman, I lead a private placement backed by the well-known macro hedge fund Mosaics, attracting top investors like Founders Fund, Stan Druckenmiller, ARK Invest, and Bill Miller.

We have blue-chip endorsements from traditional markets and venture capital, and investors trust our vision. I have long advocated for cryptocurrencies, pushing Wall Street to pay attention to Bitcoin in 2017, making it an institutional product with continuously growing holdings.

Ethereum is experiencing a "2017 moment," which makes sense to those who understand us and supports the goals of Ethereum asset companies. I support companies like SharpLink and Andrew Keys, and together we are building a secure American blockchain through staking Ethereum.

Q11: In 2017, you promoted the narrative of Bitcoin as "digital gold" on media like CNBC. Is Ethereum now in a similar stage? What similarities do you see between Ethereum's "2017 moment" and Bitcoin's?

Tom Lee: In 2017, Fundstrat focused on macro and thematic research, discovering that millennials would become the driving force of the U.S. economy. We collaborated with Snapchat to release a white paper exploring advertising for millennials and Generation Z, which was eye-catching, as many companies were still focused on Generation X.

Our research on Bitcoin found that its price rose from $100 (during the JPMorgan era) to $1,000 in 2014, with a market cap reaching $100 billion, which was shocking. Fundstrat studied for months and confirmed that 97% of the price increase came from the growth in wallet numbers and activity, reflecting the network's value effect.

We predicted that if more people used Bitcoin, the price would rise exponentially, potentially reaching $25,000 by 2022, capturing 5-10% of gold's value, which could lead to $100,000, thus promoting the "digital gold" narrative. Institutional holdings of Bitcoin were nearly zero, with all being retail investors. Bitcoin became digital gold, a store of value, with millennials holding Bitcoin like the baby boomers held gold.

The webinars caused us to lose institutional clients, as they thought recommending "drug dealer and dark web" assets was crazy, damaging our reputation. But Bitcoin is now at $120,000, up 120 times, with 1-2% of investment clients fully invested in Bitcoin, becoming "DeGens."

Ethereum is now similar to Bitcoin in 2017; it was previously seen as a dormant chain, with people pursuing faster networks or new validation methods. However, Ethereum has had a decade without downtime, which Wall Street values. Recently, Circle's IPO was strong, and stocks of Coinbase and Robinhood performed well.

Q12: Circle, Coinbase, and Robinhood are all building Layer 2 on Ethereum, and the tokenization craze is sweeping in. Has Wall Street recognized that Ethereum is at the core of these trends? Is this why you are optimistic about Ethereum treasury companies?

Tom Lee: Your description makes complete sense. However, Wall Street only makes connections when it is making money. For example, many listeners have long held Apple, Amazon, or Nvidia. Nvidia is a stock with exponential growth, but sometimes it remains stagnant for a year or even several years, then suddenly jumps, and the market realizes it needs to reprice.

Ethereum is currently in a similar stage, with on-chain activity surging to historical highs, the community revitalized, and prices recovering, with more people using Ethereum. The benefits of Genius Act for smart contract blockchains are comparable to Bitcoin, but Bitcoin does not support stablecoins.

Ethereum not reaching $15,000 is not a bad thing. I've seen similar situations; Tesla and Nvidia, which I recommended, have performed steadily in Fundstrat Capital's ETF since 2019, remaining core to the research portfolio. They do not grow linearly with revenue but move in leaps.

I hope Ethereum's price remains stable over the next five years, allowing us to acquire at lower prices. If the price reaches $17,000, acquisition costs will rise, but stock prices will benefit. The current price is favorable for us.

Q13: In 2017, you predicted Bitcoin would rise from $2,000-$3,000 to $25,000-$40,000, which Wall Street considered crazy but ultimately proved correct. With Ethereum's price now similar, do you think it will replicate Bitcoin's growth path? What are your price predictions for Ethereum?

Tom Lee: Ethereum has greater upside potential than Bitcoin due to initial skepticism. Predicting Bitcoin would reach $100,000 in 2017 seemed crazy, yet it achieved a 100x increase. Ethereum is now like Bitcoin in 2017; Wall Street does not fully believe in its survival due to proof-of-stake and supply issues, but these are being resolved.

Many believe the Layer 2 narrative is not beneficial for Layer 1, but this perception will break, leading to exponential growth. Ethereum's potential could exceed Bitcoin's by 100 times; Joe Lubin shares a similar view, and we collaborate to promote Ethereum's digital infrastructure. If Bitcoin reaches $1 million, Ethereum's potential due to financialization and artificial intelligence (its strategic role in the U.S.) is immense.

MicroStrategy's potential is three times that of Bitcoin, while Ethereum asset companies' potential is three times that of Ethereum. Bitmine leads due to unique factors, but all Ethereum asset companies will perform well due to Ethereum being undervalued.

In the short term, Ethereum should reach $4,000. A year ago, the Ethereum-to-Bitcoin ratio was 0.05; today it is stronger, with prices expected to approach $6,000. By the end of the year, considering other companies' purchases and Bitcoin's rise, a range of $7,000 to $15,000 is reasonable. In 2026, with the Federal Reserve easing and liquidity increasing, Ethereum's price will continue to rise. There is no clear crypto cycle, but if there is, it will benefit us. I hope Ethereum's price remains stable for five years before a significant rise.

Q14: Could Ethereum treasury companies form a bubble due to high MNAV premiums, similar to investment trusts in the 1920s? The collapse of GBTC and Three Arrows Capital caused market turmoil; are you concerned that Ethereum treasury companies could trigger similar systemic risks?

Tom Lee: In the liquid stock market, this is the most hated V-shaped recovery. Institutional clients in Zoom meetings believe the stock market should not rise and that valuations are too high. However, every time the call ends, it reinforces the rationale for the stock market to continue rising; non-consensus views drive the market. The market needs skepticism to rise; if everyone is bullish, that’s the top.

Not holding digital asset companies but seeing their rise does not indicate a bubble. A true bubble occurs when everyone is bullish. If listeners are bullish but the market does not rise, that is a bubble. Crypto asset companies face issues only due to leverage. Companies using complex financial instruments or debt structures may be at risk unless they are scarce and transformative like MicroStrategy or MetaPlanet.

Most crypto asset companies are ordinary; price declines will not trigger a stock market crash. Crashes are typically caused by debt or external shocks. We are far from a bubble. If capital costs are low, some Bitcoin asset companies have high trading volumes, and the market even perceives oversupply, rising only when Bitcoin rises.

There will always be calls for a bubble, but the top occurs when no one is bearish. Right now, everyone is bearish on Ethereum, Bitcoin, and the stock market. Last week, there was a bearish engulfing pattern over five days; if that is the top, everyone would say "it's fine," but now everyone is calling it the top, indicating weak conviction and that we are far from the top.

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